No blanket ban on referral fees

The Legal Services Board (LSB) has rejected an outright ban on referral fees.

It consulted last year on its recommendations to strengthen transparency rather than a ban as a means of preventing abuse. It has now fully endorsed this approach, in its document, Referral Fees, Referral Arrangements and Fee Sharing.

However, the eight individual regulators can still opt for a ban as long as they can back it up with evidence and reasons. They must ensure consumers know when and to whom referral fees are to be paid.

The Law Society said it was a “mistaken decision by the LSB, which has failed to act in the public interest”.

However, Seamus Smyth, president of the London Solicitors Litigation Association, welcomed the decision: “Robust controls are, however, required and the payment of cash incentives should be banned.”

Tim Oliver, president of the Forum of Insurance Lawyers, said the proposals “raise concerns at the potential for a mish-mash of regulatory decisions on referral fees... The LSB states in its paper that it wants to ensure a ‘consistent regulatory approach to the issue’—it is hard to see how that might be achieved.”

The LSB said it would take into account the extent to which consumer outcomes are served when considering applications by regulators to change their regulatory arrangements. It will also undertake a further review of referral fees in 2013–14.

David Greene, partner at Edwin Coe, said: “Opposition to payments made by solicitors for business is a rare point on which Lord Justice Jackson and the Law Society can agree.

“Jackson saw referral fees reflecting surplus costs in the system but others argue that a ban on referral fees would merely see a shift of cost from referral fees to other methods of generating business.”

Professor Dominic Regan said: “Given that the thrust of this administration is to reduce what Lord Young considered to be `meddlesome intervention’ I see no will to legislate on referral fees. At best we will see guidelines and unenforceable principles laid down.”